Vodka and Politics: The Ukrainian mix

As I have been told, Ukrainian Vodka differs from Russian Vodka as it is generally clean, pure and not mixed with anything, except maybe with politics as a recent change in Central government Resolutions in August 2011 suggests.

Ukrainian Vodka price up with 50%

Mr. Konstantin Krasovsky , director of the Ukrainian Information Center for Alcohol and Drugs recently stated that the new resolution on the price hike is probably due to a strong drop in Vodka production in the first half of 2010 from some 195 to 136 mln. liters. A half liter bottle now costs minimum Hr 26,10 ($ 3,25) and the raise has little to do with an increase of taxes. About 32% of the price is made off of taxes.

Another controversial Cabinet resolution

The fact that democracy is a farfetched dream in Ukraine may come as no surprise. But when good local authority regulations are overruled by the central government due to the influence of a strong commercial lobby, things tend to go over the edge. The new Cabinet resolution (approved) not only calls for a price hike of 50% for Vodka but also contains a gift to local Vodka producers, since the central Government issued a new resolution which eliminates strong local initiatives like the ban of late-night and early morning sales of alcohol.

Local initiatives overruled by central Government

In cities like Lviv, Uzhgorod and Ivano-Frankivsk was an offence which could be punished by fines. In a city like Dnipropetrovsk local authorities approved a resolution which forbits the sales of alcohol within 300 metres from schools and kindergarten. Even Kiev City Council has taken actions to forbid the unrestricted sales of alcohol from small kiosks, although this measure was later reversed in a court case won by Vodka producers and their influential political friends.

Vodka producers and Politics

So let’s take a look at the Ukrainian Vodka lobby:

Mykola Petrenko, co-founder of Petrus, which owns almost 20 alcohol brands including Gorilochka, Zlatogor and Status, is a direct adviser to Prime-Minister Azarov.

Pavlo Klimets, co-owner of Olimp, which produces Prime and 5 Kapel brands, is a deputy from the pro-presidential Party of Regions.

Stepan, the brother of Oleksandr Glus - president of the supervisory board at Nemiroff – is a deputy from the opposition Bloc of Yulia Tymoshenko.

Andriy Okhlopov, owner of Soyuz-Viktan, is a parliamentarian from the Authonomous Republic of Crimea.

Together these companies alone account for some 30% of Vodka sales in Ukraine.

Conclusions

We are looking at yet another central government resolution which destroys any local initiatives

The price raise of 50% does not come with any raise in taxes on pure alcohol.

PM Azarov’s explanation that the strong price raise would tackle the production of counterfeit vodka – which currently accounts for some 25% market share - is quit controversial. One may take any example of local goods being raised in prices and know that this usually turns people to home-made production and cheaper counterfeit products.

Oleksandr Glus’ explanation that components of the production process have risen significantly comes without any explanation of which elements have risen in price. It should be the basic ingredients as labor costs have recently gone down instead of up.